Harmonizing Rates and External Debt Payments

The Board of the BCRA continues with the unification strategy of the monetary policy benchmark interest rate; the difference between the reverse repo rate and the LELIQ interest rate that has been allocated to grant subsidized credit lines at 24% stemmed from the policies developed at the beginning of the pandemic when specific actions were taken to mitigate the economic and financial effects of the COVID-19 health crisis.

In this context, the BCRA increased the reverse repo rate to 27% (APR), up 3 p.p. in addition to last week’s 5 p.p. increase. It also decided to raise the LELIQ rate to 37%, in order to gradually align the Treasury rates with the rates of BCRA´s sterilization instruments.

The increase in the reverse repo rate, the reduction in LELIQ holdings, and the alignment of the rates of BCRA´s instruments with that of the Treasury’s will gradually reduce the quasi-fiscal sterilization cost and increase its effectiveness with considerable influence on short-term interest rates. As regards time deposits, the coefficients were changed to keep a yield of 33.06% (APR) for 30-day natural persons’ time deposits under ARS1 million, and for the other time deposits, a yield of 30.02% (APR).

As part of the ongoing regularization process, the BCRA adopted a resolution whereby the importers of final goods and the sectors that had been excluded from the Emergency Assistance Program for Work and Production (ATP, in Spanish) may neither be eligible to apply for the credit line offered to MSMEs at a 24% interest rate—which had been launched to mitigate the financial effects suffered by the sectors most affected as a result of the coronavirus pandemic.

Private Debt Restructuring

The ensemble of large companies with monthly maturities of more than USD1 million submitted debt restructuring plans that comply with the provisions established by the BCRA in Communication A7106. The constructive dialogue between the private sector and the Board of the BCRA has resulted in relaxed regulations that facilitate the compliance with those plans. In this sense, companies may access the forex market to pay financial debt (principal and interest) at least 30 calendar days in advance of the maturity date. They may also access the forex market prior to the maturity date if an early-payment is made in the context of debt security swaps.

October 8, 2020.